Interim Results

Hays PLC 5 March 2001 HAYS plc - INTERIM RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 2000 Financial Highlights First Half First Half 2000 / 2001 1999 / 2000 - Turnover from continuing £1261.3m £1015.0m +24% operations - Operating profit* £142.0m £125.8m +13% - Profit before tax* £130.0m £121.2m +7% - EPS* 5.5p 5.2p +6% - Dividend 1.32p 1.15p +15% * Before discontinued operations, exceptional items and amortisation of goodwill. Business Highlights - Organic growth in Group sales accelerated to 15%. - Personnel achieved excellent growth with operating profit up by 38% to £70.1m. - Logistics turnover increased organically by 16% with new contracts worth £70m p.a. (or £350m over the contract life) with Sainsbury's, Carrefour, BMW, Gillette, Danone and others to support future expansion. - Good progress by Commercial held back by the integration of recent Mail & Express Services acquisitions in France and Spain. Profit growth will improve in the second half enhanced by major new contracts notably the national management information system for the Police. - Continued good progress in the newly established fourth party supply chain solutions (4PS) activity with a number of promising projects underway. Ronnie Frost, Chairman, commenting on the results said: 'During a period of substantial development and investment to take advantage of future opportunities, I am pleased by the progress of the Group, and in particular by the outstanding profit growth achieved by Personnel. An improvement can be expected from Commercial and Chemicals in the second half as they start to benefit from new contract wins and increases in market prices. As shareholders will be aware I announced at our AGM that I would be stepping down as Chairman on the 1st July 2001 and handing over the reins to Bob Lawson, our Deputy Chairman. I am confident that shareholders will be delighted with Bob as Chairman as he steers Hays through the next stage in its development. I will remain available to support Bob as he requires.' Presentation on the web-site and delayed web-cast: The presentation to analysts, with accompanying slides, will be available to view on the Hays website from 14:00 UK time on 5th March 2001 - www.hays- plc.com. Raw Communications The presentation will also be filmed and distributed by RAW Communications to those who subscribe to that service. Conference call: John Cole and Graham Williams of Hays plc will conduct a conference call for analysts at 14:30 UK time on 5th March 2001. The dial-in details are as follows: UK/European dial-in number: +44(0) 20 8240 8244 USA dial-in number: + 1 800 482 2225 Password: Hays The call will be recorded and available for playback until 16 March 2001 on the following: UK/European replay dial-in number: +44 (0) 20 8288 4459 UK/European access code: 687 662 USA replay dial-in number: +1 800 625 5288 USA access code: 928 321 Enquiries: Ronnie Frost Chairman 01483 302203 Hays plc Graham Williams Executive Director 01483 302203 Hays plc Jon Coles Brunswick 020 7404 5959 Corinne Daniels Brunswick 020 7404 5959 CHAIRMAN'S STATEMENT Group Profit In the six months to 31 December 2000 Group sales on continuing operations rose by 24% and operating profit on continuing operations rose by 13% before goodwill amortisation on acquisitions. Despite a substantial increase in the interest charge due to a number of factors, including higher Euro interest rates, earnings per share before amortisation of goodwill and exceptional items increased by 6%. We are pleased with the profit growth achieved during a period of strategic transition and development. We have continued to invest in management, infrastructure and IT to enable us to offer customers ever more sophisticated and integrated solutions, often involving more than one Division of Hays in more than one country. These solutions are focused on supply chain, business process and human resources management and increasingly involve the complete outsourcing of these activities by customers to enable them to focus on their core activities. We have strengthened our consultancy and IT capabilities, established the 'Fourth Party Solutions' (4PS) business unit, completed the initial training on i2 software and achieved rapid organic growth on our HR outsourced solutions business. Hays is now uniquely placed to take advantage of the trend towards the outsourcing of business critical processes. Interim Dividend The interim dividend is being increased by 15% to 1.32p and will be paid on 31 May 2001 to shareholders on the register on 27 April 2001. The Board's policy is to continue to provide shareholders with progressive dividend growth. Logistics The first half of the year saw good progress in Logistics with organic sales growth of 16% and a 10% increase in operating profit to £28.0m. This improvement was achieved despite fuel price rises and fuel blockages in several countries, as well as investment to establish a 4PS Supply Chain Management activity. Our planned exit from the commodity transport business in Germany was satisfactorily completed and we are well placed for further strong organic growth. We have successfully completed the start-up phase of the complex £75m p.a. Iveco contract across Europe, meeting the tight deadlines set at the outset. We currently operate major sites for Iveco in the UK, France, Germany, Spain and Italy and took full responsibility for Iveco's European transport management from January 2001. We now have 5 pilot studies which are jointly being progressed with customers under the management of our new Fourth Party Solutions (4PS) business unit. We are confident that substantial business will develop out of these studies. A demonstration centre for Hays Logistar and i2 supply chain systems was opened in Paris earlier this year so that our multi-national team can demonstrate to customers our skills in the design and implementation of complex supply chain solutions. During the past six months we have won new contracts which will deliver additional annualised revenue in excess of £70m per annum. Over the life of these contracts the total revenue is more than £350m. We have further developed our European crate management business with an exciting new seven- year contract with Sainsbury's in the UK. This contract was won through our unique system for increasing efficiency and improving asset utilisation. Under this contract we will manage all aspects of the crates supply chain using our internet based tracking, stock control and billing systems. Hays now manages in excess of 350 million crate movements across Europe each year for a wide variety of customers. Other new business wins include the selection by Auchan of Hays Logistar systems to control their chill supply chain in France. In addition we have won new logistics contracts with Auchan, Leroy Merlin (DIY) and Carrefour in Italy, Gillette in France, BMW in Germany, Nortel in Holland, Danone in Poland and a retailer in Spain. Chemicals As expected, profits from our Chemicals operations were lower than the same period last year, with the depressed price of caustic soda being the major factor. Having reached the low point in the cycle of £107 per tonne in early 2000, the spot market price of caustic soda has already more than doubled. This is directly benefiting our profits in the second half, though contract prices always lag the spot market by about 4 months. Our Chemical Distribution business continues to achieve success in a difficult market for UK manufacturers by converting major customers such as BP Chemicals and Glaxo Smithkline to total supply chain management agreements. Commercial The first half performance was disappointing with operating profit down 4%, due primarily to our Mail & Express businesses on the Continent. Commercial would have shown profit growth of 12% if the continental mail businesses had not made losses. In each of France and Spain we acquired and subsequently merged two companies. In both cases it has proved more difficult than anticipated to put the two businesses together and it has not been possible to resolve all the issues quickly. I am pleased to report that management actions in France have turned that business into profit for the month of January allowing us to be more positive about results in the second half but there is continued severe price pressure on our smaller Spanish business. In the UK document exchange volumes have shown satisfactory growth, supported by new business wins, although profits were held back by the fuel blockage in September which halted activities for a number of days. In Ireland we have won a contract with the associated Banks of Ireland and in the UK we have gained new customers in the optical sector. In mailroom management we have now implemented the contract to handle the London mailrooms of the National Westminster Bank. The Government has announced its initial plans for the liberalisation of the mail services market. As the only substantial alternative mail operator in the UK, Hays is well placed to benefit from deregulation. We are keen to win licences from the Postal Regulator which will allow us to accelerate the growth of our business by entering new markets. Our Business Process Outsourcing activities, including Document Storage, have progressed well and we are now starting the next phase of development. We have integrated and grouped together a number of previous acquisitions to create centres of expertise and provide total solutions for customers. The costs associated with this have inevitably had an unfavourable impact on profit in the first half of the year. Nevertheless, Business Process Outsourcing recorded a good increase in profit and we expect growth to accelerate in the second half. We are embarking on an exciting new programme to modernise and rationalise our network of document storage sites. Customers will benefit from an improved service capability fully integrated with our other Business Process Outsourcing activities, bringing together a full range of electronic storage and other document solutions. Also within BPO we have achieved significant new business wins which will benefit the second half. We are extremely pleased that in late 2000 Hays achieved accreditation from the Police Information Technology Organisation (PITO) for a new National Management Information System (NMIS) for Police Forces. Despite being the last system to be specified by PITO this is the only one so far to have achieved accreditation under the programme known as the National Strategy for Police Information Systems. The system enables the Police to manage their information and resources more efficiently on a geographical basis. It also provides local authorities and government with consistent and comparable statistical data. The system has already been sold to 7 Police Forces, including the Metropolitan and Greater Manchester forces, and implementation has commenced. More recently, government funding has been confirmed for the purchase of NMIS and we are now in discussion with Police Forces throughout the UK, which will lead to further substantial sales. Once implemented Hays will have a number of recurring revenue streams from managed services. The Hays system also has significant potential in other similar organisations and one version has already been implemented successfully within the Sunderland Health Trust. Personnel Another set of superb results was delivered by the Personnel Division with operating profit increasing by 38% to £70.1m from our core recruitment business and other HR activities. Of this growth 32% was organic and 6% through acquisitions. The UK businesses grew strongly, particularly Accountancy Personnel and Montrose Technical. The public sector showed good progress and now represents over 10% of our turnover. Our IT acquisitions have been successfully integrated into one business, planned cost savings have been achieved and organic growth has resumed strongly following the slowdown post Y2K. In October 2000 we acquired ZMB, a leading UK legal recruitment consultancy, for a total consideration of up to £15m, including deferred payments. The acquisition of ZMB further strengthens our position in the UK legal market. We are now extremely well placed to meet the staffing needs of the City of London and the financial services sector in general, with market leading positions in accounting, banking, legal, insurance and IT recruitment. Our businesses in Australia continue to perform well although there are some signs that the economy is beginning to slow. On the Continent of Europe we have successfully merged the three IT recruitment businesses that we acquired in France and have achieved significant growth in Holland. Further development of markets on the Continent is likely to follow the model of our Australian businesses, where we have proved that we can develop new business sectors cost effectively alongside an established local operation. Our Haysworks.com portal website was launched successfully in autumn 2000. Already 60% of the CV's we handle are received via the web and the site receives 1.6m hits per week. This award-winning site offers both employers and candidates a diverse range of HR related advice and services. It is much more than just a job board with the ability to match candidates CVs with employment vacancies. The value of this innovative HR portal is demonstrated by the growth in activity each month and by the high number of visits which last for more than 15 minutes. Our recently established Hays Personnel Solutions business continues to benefit from the trend for companies to outsource a wide range of HR activities under long-term contracts. Sales have more than doubled during the first half of the year to an annual rate in excess of £100m which represents nearly 10% of Personnel's revenue. In the public sector we have been appointed by the London Borough of Southwark to handle the management of all their recruitment on an outsourced basis. We are confident that HR outsourcing will be seen as increasingly attractive by both large and small businesses and that it will become an important part of our Personnel activity. Balance Sheet and Cashflow Our balance sheet remains strong notwithstanding that since 30 June we have experienced the usual seasonal increase in working capital. During the period £140m of long-term loan finance was raised at 6.99% via a highly successful private placement. We continue to generate a strong cash flow. The interest charge has risen to £12.0m (1999 - £4.6m) primarily due to a rise in capital expenditure, the cost of acquisitions and acceleration of Corporation Tax payments as well as increases in interest rates and working capital. Interest cover remains extremely strong at 12 times. Group Management and Staff After 8 years as a Director David Tibble retires from the Board on 5 March 2001 to take up an academic post at a local university. In preparation for retirement David has been passing over his responsibilities in Business Process Outsourcing during the past 6 months, and he will continue to assist the Group on a number of projects. As more customers look for integrated solutions involving more than one division of Hays it has been decided to further simplify the Board structure by reducing the number of operational Executive Directors - we will have one for each of our three core activities. Keith Charlton becomes responsible for the strategic development in Commercial and Chemicals, Xavier Urbain for Logistics and Denis Waxman for Personnel. Robert Morgan leaves the Board on 5 March 2001 to take up new interests outside the Group. We continue to ensure that the Board has an effective structure as the Group evolves and grows and I am delighted to announce the immediate appointment of Brian Wallace as a non-Executive Director. Brian is deputy chief executive of the Hilton Group plc with an established background in service industries. He has been Finance Director of the Hilton Group plc since 1995. Brian brings to the Hays Board a thorough understanding of both practical and technical issues. Prospects In a period of unprecedented change it is increasingly apparent that our customers require integrated solutions for their outsourcing needs, often involving more than one Hays division and on a pan European basis. Our intellectual property is becoming more important than our physical assets as we deliver intelligent solutions to meet our clients' requirements. We will continue to make the necessary investment in our management infrastructure and IT systems so as to enable Hays to capitalise on its unique capability to offer a wide range of integrated services across Europe. In this period of development I am pleased by the progress the Group has made and expect growth in the second half to lead to a satisfactory result for the year. As shareholders will be aware I announced at our AGM that I would be stepping down as Chairman on 1 July 2001 and handing over the reins to Bob Lawson, our Deputy Chairman. I am confident that shareholders will be delighted with Bob as Chairman as he steers Hays through the next stage in its development. I will remain available to support Bob as he requires. Ronnie Frost Chairman RESULTS For the half year ended 31 December 2000 (In £'s million) Half Year to Half Year to Increase Year to 31 December 31 December 30 June 2000 1999 % 2000 (Unaudited) (Unaudited) Turnover Continuing Operations 1,256.7 1,015.0 2,188.9 Acquisitions 4.6 - - ____________ ____________ ________ 1,261.3 1,015.0 +24% 2,188.9 Discontinued Operations 3.2 14.8 27.5 ____________ ____________ ________ 1,264.5 1,029.8 2,216.4 Profit from operations Continuing Operations 141.4 125.8 280.3 Acquisitions 0.6 - - ____________ ____________ ________ 142.0 125.8 +13% 280.3 Discontinued Operations - 0.5 (5.8) ____________ ____________ ________ 142.0 126.3 274.5 Goodwill amortisation (9.0) (4.0) (10.3) ____________ ____________ ________ Operating profit 133.0 122.3 264.2 Exceptional items - 0.9 (48.7) Net interest payable (12.0) (4.6) (11.9) ____________ ____________ ________ Profit on ordinary 121.0 118.6 203.6 activities before taxation Tax on profit on ordinary (35.7) (31.6) (72.3) activities ____________ ____________ ________ Profit on ordinary 85.3 87.0 131.3 activities after taxation Equity minority interests (0.1) (0.2) (0.5) ____________ ____________ ________ Profit for the period 85.2 86.8 130.8 Dividends (22.2) (19.4) (60.3) ____________ ____________ ________ Transferred to reserves 63.0 67.4 70.5 ============ ============ ======== Earnings per ordinary 5.5p 5.2p 11.1p share before exceptional items and goodwill amortisation Basic earnings per share 5.0p 5.1p 7.7p Diluted earnings per share 4.9p 5.0p 7.6p Dividend per share 1.32p 1.15p 3.54p Interest cover 12X 27X 23X SUMMARISED BALANCE SHEET As at 31 December 2000 (In £'s million) 31 December 31 December 30 June 2000 1999 2000 (Unaudited) (Unaudited) Goodwill and intangible fixed assets 316.5 197.4 298.7 Tangible fixed assets 512.4 472.7 490.9 Investments 56.2 33.2 38.9 Net current assets/(liabilities) 9.6 (32.0) (85.4) Other creditors due after more than (29.3) (55.7) (36.3) one year Provisions for liabilities and (26.7) (20.5) (21.0) charges ____________ ____________ ________ 838.7 595.1 685.8 ============ ============ ======== Called up share capital 17.3 8.6 17.3 Share premium account 362.4 360.7 359.2 Profit and loss account 93.6 (0.7) 30.8 ____________ ____________ ________ Equity shareholders' interests 473.3 368.6 407.3 Minority interests 1.5 1.6 1.5 ____________ ____________ ________ 474.8 370.2 408.8 Net debt 363.9 224.9 277.0 ____________ ____________ ________ 838.7 595.1 685.8 ============ ============ ======== Net debt as a % of shareholders' and 77% 61% 68% minority interests RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' INTERESTS (In £'s million) Half year to Half year to Year to 31 December 31 December 30 June 2000 1999 2000 (Unaudited) (Unaudited) Profit for the period 85.2 86.8 130.8 Dividends (22.2) (19.4) (60.3) ____________ ____________ ________ 63.0 67.4 70.5 Exchange differences on translation (0.2) (4.7) (2.2) New share capital subscribed 3.2 4.0 7.6 Goodwill written back - 4.7 34.2 ____________ ____________ ________ Net increase in shareholders' 66.0 71.4 110.1 interests Opening shareholders' interests 407.3 297.2 297.2 ____________ ____________ ________ Closing shareholders' interests 473.3 368.6 407.3 ============ ============ ========= SUMMARISED CASH FLOW STATEMENT For the half year ended 31 December 2000 (In £'s million) Half year to Half year to Year to 31 December 31 December 30 June 2000 1999 2000 (Unaudited) (Unaudited) Operating activities Total operating profit 133.0 122.3 264.2 Depreciation and amortisation 40.0 29.9 65.4 Other operating activities 0.8 (3.8) 0.7 Increase in working capital (80.3) (60.0) (21.8) _____________ ____________ ________ Net cash inflow from operating 93.5 88.4 308.5 activities Returns on investment and servicing (12.7) (5.3) (12.0) of finance Tax paid (27.1) (2.0) (76.6) Capital expenditure (41.7) (31.5) (81.4) _____________ ____________ ________ Cash inflow before acquisitions and 12.0 49.6 138.5 disposals Acquisitions and disposals (34.3) (31.1) (146.9) Equity dividends paid (40.7) (35.6) (54.8) _____________ ____________ ________ Cash outflow before financing (63.0) (17.1) (63.2) Financing 69.8 13.7 81.3 _____________ ____________ ________ Increase/(decrease) in cash 6.8 (3.4) 18.1 ============= ============ ======== Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash 6.8 (3.4) 18.1 Cash flow from financing (83.6) (25.3) (94.6) _____________ ____________ ________ Change in net debt resulting from (76.8) (28.7) (76.5) cash flows Borrowings acquired with - (8.0) (4.9) subsidiaries Loan notes issued (10.6) (2.0) (3.5) Exchange adjustment and other 0.5 10.8 4.9 _____________ ____________ ________ Movement in net debt in the period (86.9) (27.9) (80.0) Opening net debt (277.0) (197.0) (197.0) _____________ ____________ ________ Closing net debt (363.9) (224.9) (277.0) ============= ============ ======== NOTES 1 STATEMENT UNDER S240 - PUBLICATION OF NON STATUTORY ACCOUNTS The financial information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the financial year ended 30 June 2000. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 2 BASIS OF PREPARATION OF INTERIM FINANCIAL INFORMATION The interim financial information has been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 30 June 2000. 3 BONUS SHARE ISSUE On 24 January 2000 a one for one bonus issue of shares took place. As a result the Company's issued share capital doubled. The amount of earnings and dividends per share for the prior period have been calculated as if additional shares were in issue at 30 June 1999. 4 SEGMENTAL INFORMATION (In £'s Half year to Half year to Year to million) 31 December 2000 31 December 1999 30 June 2000 Turnover Operating Turnover Operating Turnover Operating Profit Profit Profit (Un- (Un- (Un- (Un- audited) audited) audited) audited) BY BUSINESS SECTOR Continuing Operations Logistics 451.1 28.0 375.3 25.4 781.4 60.3 Chemical 78.0 5.8 80.5 10.1 159.9 17.7 Distribution Commercial 229.9 38.1 212.1 39.5 445.0 84.8 Personnel 502.3 70.1 347.1 50.8 802.6 117.5 _______ ________ ________ _________ ________ _________ 1,261.3 142.0 1,015.0 125.8 2,188.9 280.3 Discontinued 3.2 - 14.8 0.5 27.5 (5.8) Operations Goodwill - (9.0) - (4.0) - (10.3) amortisation _______ ________ ________ _________ ________ _________ 1,264.5 133.0 1,029.8 122.3 2,216.4 264.2 ======== ======== ======== ========= ======== ========= BY GEOGRAPHIC AREA Continuing Operations United Kingdom 858.6 116.3 666.0 98.9 1,454.3 224.3 Other Europe 330.0 15.6 296.0 19.8 612.3 38.4 Rest of the 72.7 10.1 53.0 7.1 122.3 17.6 World ________ ________ ________ _________ ________ _________ 1,261.3 142.0 1,015.0 125.8 2,188.9 280.3 Discontinued 3.2 - 14.8 0.5 27.5 (5.8) Operations Goodwill - (9.0) - (4.0) - (10.3) amortisation ________ ________ ________ _________ ________ _________ 1,264.5 133.0 1,029.8 122.3 2,216.4 264.2 ========= ======== ======== ========= ======== ========= 5 EXCEPTIONAL ITEMS No exceptional items have been charged or credited in the period. In the half year ended 31 December 1999 the exceptional profit of £0.9m related to the disposal of the animal feed ingredients business and certain fixed assets. In the year ended 30 June 2000 the exceptional charge of £48.7m principally related to the disposal and closure of bulk transport businesses in Germany and France. 6 EARNINGS PER SHARE Earnings per share is based on profits from ordinary activities after taxation and minority interests of £85.2m and a weighted average of 1,701.3 million shares. To enable comparisons with previous periods, earnings per share has also been calculated before goodwill and exceptional items using earnings of £94.2m. The weighted average number of shares in issue excludes shares held by the Hays Employee Share Trust Ltd and the QUEST (Hays plc Qualifying Employee Share Ownership Trust). The dilution effect of share options issued to employees but not yet exercised is 20.0 million shares and the diluted earnings per share is 4.9p. 7 DIVIDENDS Half year to 31 Half year to 31 Year to December 2000 December 1999 30 June (pence) (Unaudited) (Unaudited) 2000 Interim - pence per ordinary 1.32 1.15 1.15 share Final - pence per ordinary share - - 2.39 _______________ _______________ _______ 1.32 1.15 3.54 =============== =============== ======= (In £'s million) Interim 22.2 19.4 19.4 Final - - 40.9 _______________ _______________ _______ 22.2 19.4 60.3 =============== =============== ======= 8 PROVISIONS FOR LIABILITIES AND CHARGES (In £'s million) Pensions Deferred Property Deferred Other Total taxation Employee Benefits At 1 July 2000 6.2 1.0 4.9 6.9 2.0 21.0 Acquisitions - - - 5.7 - 5.7 Charged to P&L account 0.6 - - - 0.6 1.2 Utilised - - (0.7) - (0.5) (1.2) _______ ________ ________ ________ _____ ______ At 31 December 2000 6.8 1.0 4.2 12.6 2.1 26.7 (unaudited) ======= ======== ======== ======== ===== ====== 9 RESERVES (In £'s million) Share Profit & loss Premium Account At 1 July 2000 359.2 30.8 Translation differences in respect of foreign - (0.2) subsidiaries Shares allotted on the exercise of options 2.3 - Shares issued to QUEST 0.9 - Transferred from profit and loss account - 63.0 ________ ____________ At 31 December 2000 (unaudited) 362.4 93.6 ========= ============ 10 ACQUISITIONS The following acquisitions were completed in the half year: Applied IT Limited 1 September 2000 Turngate Limited (ZMB) 18 October 2000 The assets acquired are set out below: (In £'s million) Fair values acquired (Unaudited) Tangible fixed assets 15.1 Debtors 3.3 Cash 1.0 Creditors and provisions (11.5) _____________ Net assets acquired 7.9 Goodwill 24.9 _____________ 32.8 ============= Consideration Cash 20.0 Loan notes issued 8.1 Deferred consideration recognised 4.7 _____________ 32.8 ============= 11 MOVEMENT IN NET DEBT (In £'s million) Cash Debt Net Debt At 1 July 2000 95.1 (372.1) (277.0) Foreign exchange movements (0.5) 1.0 0.5 Movement during year 6.8 - 6.8 Borrowings repaid - 111.8 111.8 Borrowings raised - (206.0) (206.0) __________ __________ ____________ At 31 December 2000 (unaudited) 101.4 (465.3) (363.9) ========== ========== ============ 02 March 2001 Cash comprises cash at bank and in hand, less overdrafts. Debt includes borrowings and finance lease liabilities.

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